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There are occasions when you don’t have access to all the data required for accounting. Your bookkeeping efforts can be thwarted by omissions or errors, so make sure to document every transaction. When you are unsure of where to record general ledger entries, it is wise to use a suspense account.
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In this article, we will delve into the Suspense Account in QuickBooks and how you can use them.
What is a Suspense Account in QuickBooks?
Suspense accounts are accounts that can be kept either permanently or temporarily to record uncertain entries. To put it another way, you must create a suspense account whenever the trial balance is out of balance or whenever a transaction is recorded that is not immediately identifiable.
Opening a suspense account to keep any disparities while working with the trial balance is permitted in order to help you find them later. These accounts should be closed by the conclusion of the accounting cycle because they are transient in nature.
The suspense account may also be an asset-liability. Because it holds the payment associated with the accounts receivable, the suspense account is regarded as a current asset if it is the asset in dispute.
However, if your account has an account payable, it will be regarded as a liability asset, and you are unsure of how to classify it.
What is an Example of a Suspense Account?
A customer submits a $1,000 payment but does not identify which open invoices it would cover. The accounting team temporarily lodges the $1,000 in the suspense account until it can decide which invoices to charge. The initial transaction in this instance to add the monies to the suspense account is:
| Debit | Credit | |
| Cash | $1,000 | |
| Suspense Account | $1,000 |
The accounting team calls the client, determines which invoices should be paid with the $1,000, and transfers the money with the following entry:
| Debit | Credit | |
| Suspense Account | $1,000 | |
| Accounts Receivable | $1,000 |
What is the Significance of Suspense Account Entries?
You may maintain order in your accounting books by using suspense accounts. They guarantee that you correctly record all transactions in your books.
The balances in your permanent accounts might be off if you record unclear transactions. You may prevent recording transactions in incorrect accounts by using suspense accounts. Furthermore, you prevent excluding a transaction from your records due to incomplete information.
When to Use a Suspense Account?
When holding payments in the suspense account, many circumstances may arise. The following situations necessitate using a suspense account:
The Process of Creating a Trial Balance
The trial balance, which is found under the title Other Assets, shows the suspense account. Until you identify the causes of the imbalance, this stays exactly where it is. Moreover, if your credits are greater than your debits on the trial balance, the difference registers as a credit in your suspense account.
On the other hand, if your trial balance credits are more than your debits, the discrepancy posts as a debit in your suspense account. These accounts are cancelled, though, after you determine the cause of your trial balance and fix it. This causes your trial balance to automatically eliminate the suspense account.
You Get a Portion of the Money
When you are paid, you have to set up a suspense account. It is impossible to determine which client sent the money and for which invoice. You can contact your customer directly to find out which invoice and products they have paid you for if they send you partial payments.
When You Aren’t sure Who Paid the Bill
There is only one method to determine this if you cannot verify who sent you the payment. You should open the invoices and compare the specifics, such as payment.
Calling the consumer might allow them to confirm the payment before you publish it. If you are unable to locate the customer, you should either remove the customer from QuickBooks or hold the money in escrow until you find the correct customer to whom it should be paid.
A Fixed Asset is Something You Buy, But You don’t Get it until it’s Paid for
Imagine you purchase a fixed asset by making a payment, but you won’t get the item until it is fully paid off. Accounts payable might be started under such circumstances. Without even designating the payment to a specific machinery account or piece of equipment, you may record the payments using the suspense account.
Furthermore, adding these payments to the current fixed asset will undoubtedly skew the asset value. You can shut your suspense account once the asset has been delivered and the payment has been completed in full. Be sure to create a separate account specifically for the fixed asset.
You are Making a Journal Entry
You may credit or debit the suspense account if a one-sided mistake exists that is fixed by the journal entries. However, it entirely depends on the type of mistake.
You have No Idea What Category to Put the Transaction in
How Can You Set Up QuickBooks Suspense Account?
You may create the suspense account in QuickBooks by selecting it from the List menu. The only steps required are to choose the Chart of Accounts, select the Account Type, and add a new account with the necessary information.
You have to stick to the following steps:
Step 1: Select “Account” from the list at the bottom.
Step 2: Activate the “New” button.
Step 3: You have to opt for Account Type Expense.
Step 4: Press the “Continue” key.
Step 5: Now enter the name of your account in the Account Name column.
Step 6: If you do, Enter the account number in the Number column.
Step 7: To save and close, Click the button.
After you have saved the information, you may utilize the suspense account to create a trial balance. You can hold all the variations in your hands until you can recognize them.
How Can You Clear the Suspense Account in QuickBooks?
You must ascertain that the original account shown on your transaction records exists to delete your suspense account. From the Inquiry menu, you may perform this.
The steps that you need to stick to are:
Step 1: Navigate to the Inquiry menu.
Step 2: Go to the Account menu.
Step 3: Visit the Current option.
Step 4: Click on the OK button.
Step 5: Select the Conditions.
Step 6: Visit the Field tab.
Step 7: Opt for the Account.
Step 8: Choose the Equal to in the Operator section.
Step 9: Write down the Suspense account number in the Value section.
Once you are through with the process, you should save the changes by clicking on the OK button. You can empty your suspense account in this manner. Please double-check the suspense account number you are adding.
What are the Best Practices for Suspense Accounts?
You should review the items in a suspense account regularly to transfer transactions as quickly as feasible into the proper accounts. If not, the account’s balance might increase to sizeable levels and become very challenging to manage months later, especially if there is no support for the first transactions that were made.
As a result, the controller should measure the suspense account balance every day to utilize it as the starting point for ongoing inquiries. In addition to this, it’s helpful to keep note of which transactions are routinely shifted into the suspense account so that systems may be improved to make it simpler to correctly detect these items going forward and keep them out of the account.
By the conclusion of the fiscal year, every item in the suspense account should be gone. In the absence of this, a corporation is publishing financial statements that are inaccurate because they include unidentified transactions.
The article sheds light on the suspense accounts in QuickBooks. You also get to know about the significance, the setting up process, clearing them, and much more.
However, if you were unable to follow any steps, you should not hesitate to contact a professional. He or she will clear your doubts and explain the steps.
If you have further queries related to suspense accounts in QuickBooks, you should get in touch with Dancing Numbers team via LIVE CHAT.
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+1-800-596-0806 or chat with experts.
Frequently Asked Questions (Faqs)
Why do You Need a Suspense Account?
The temporary holding of unclassified transactions is possible with a suspense account. But bear in mind that you must shut this suspense account after the transaction has been transferred to the permanent account.
Where can You Find the Suspense Account?
If you believe the suspense account will not be closed before the end of the accounting period, you should check the suspense account balance (found on the asset section of a balance sheet) to determine if there is a debit balance. The information would appear in the liability area of your balance sheet, though, if it were a credit balance.
What do You mean by a Profit and Loss Suspense Account?
The profit and loss accounts categorize the items as either expenses or income. The item will be sent to a temporary account known as the suspense account if there is any doubt regarding identification.
Is the Suspense Account Credit or Debit?
When you know one side of payment but not the other, a suspense account might be credited or debited. You don’t always include financial transactions, though. As a result, a suspense account is viewed as merely being temporary.
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